MPs calls for new connection charges and reformed grid operators

A new report from MPs scrutinising the government’s energy policy has called for significant and wide-ranging changes to the UK’s grid governance and policy landscape if the country is to transition towards low carbon network infrastructure.

The energy and climate change (ECC) select committee released its latest report on 17 June, which criticises both the government over its slow pace in developing energy policy and the current organisation of the UK’s grid infrastructure.

It judged that while developing low carbon electricity is key to the UK’s decarbonisation ambitions, the current charging regime is not fit for purpose when addressing the “astounding” rise in new connection requests, particularly on distribution networks.

Using solar as an example, the report states: “The UK’s installed solar capacity is approaching levels previously expected by 2030, stacking pressure on regional distribution networks. There is a need for better integration of connection and planning-consent processes.”

Charging for distribution network connections

As well as calling for the establishment of a cross-departmental working group to investigate and report on these improvements, the committee also suggests that charges be applied to generators requesting a connection to distribution networks.

Currently, distribution network operators (DNOs) are required to offer a grid connection to any generator on a first-come-first-serve basis, with no up-front application fees. The committee claims this is problematic as it attracts a number of speculative applications which cause a backlog in projects seeking connections.

Tony Glover, director of policy at the Energy Networks Association, is quoted in the report claiming “about 70% of applications to connect are in fact speculative”.

The report therefore suggests that the government should consider allowing DNOs to charge for connections, but that “a sweet spot” should be found between the minimum fee required to discourage speculative applications, and a level that would be a significant disincentive to the development of new generation.

Distribution System Operators and changes to National Grid

As well as this, the committee has also suggested significant changes to the role of DNOs to reflect the growth of electricity generation at a locally distributed, rather than transmission, level. Currently, DNOs are considered to be “somewhat blind to their energy flows and passive in managing them” and so the report suggests a transition to fully-functional distribution system operators (DSOs) which balance and control their local grids.

DSOs would take up more of an operator function, using smart technologies to balance energy flows at a distribution level as the National Grid does for national transmission. The benefits of this change are deemed to be “near-universally acknowledged” yet the report states that the government has failed to set out a possible road map for this change.

It therefore calls for the government to develop and publish a plan for DSO introduction, identifying future legislative and regulatory changes needed. It also suggests that a requirement be placed on small-scale generators to provide real-time information to DSOs.

In addition to changes in the distribution network, the ECC committee has also called for significant reforms to the transmission network after levelling scathing criticisms at the National Grid. It claims the transmission network operator could be considered subject to potential conflicts of interest which would undermine the development of low carbon network infrastructure.

Namely, it claims that National Grid can currently benefit from ‘asset paddling’, meaning it can advocate more capacity than needed in order for these assets to be built and then owned by National Grid.

By being in the position of both benefitting from asset development and being in an influential position to recommend it, the select committee claimed National Grid could undermine the development of low carbon network infrastructure needed at a distributed level.

It therefore suggests the formation of an Independent System Operator (ISO) which would take on the transmission system operator function from National Grid, which would become solely the transmission asset owner.

“Despite strong efforts by National Grid itself and Ofgem to mitigate the potential for conflicts of interest, it seems intractable and growing. Unnecessary asset development, or giving interconnectors an unfair advantage over existing and emerging balancing tools, could dilute the impact of other efforts to develop low-carbon network infrastructure,” the report claims.

The Department of Energy and Climate Change (DECC) has purportedly expressed a desire to move towards this new model but has failed to publish anything of note on the subject. The committee has therefore urged DECC to set out its intentions regarding an ISO as soon as possible, and consult on a detailed, staged plan for their implementation, so as to avoid injecting uncertainty into the energy sector.

“Glacial pace” of policy development

Many of the findings of the report continue to point towards the slow pace of policy development at DECC in many areas in addition to grid governance and charging. It states: “Government has been slow to present a clear, holistic plan for the evolution networks need. It seems instead to have disconnected policy ideas at various stages of implementation.”

This is typified by the slow pace of rolling out smart meters, which the select committee claims is “not progressing quickly enough to achieve the necessary mass to truly create a smart energy network.”

Around 53 million smart meters are expected to be offered to homes and businesses across the UK, with DECC estimating that the technology could provide £1 billion worth of benefits to networks, among approximately £18 billion of wider benefits against the cost (approximately £12 billion) of their roll-out. However, the ECC committee claims there are significant questions about whether the scheme is on track to meet its 2020 goals.

The report also points to the “glacial pace” with which regulation is adapting to storage technologies, which the committee sees as hugely important in transitioning to a low carbon network system in the UK.

Overcoming regulatory barriers to storage are a dominant theme in the report, with the need for the technology to no longer be classed as a generator of significant importance. Its current status means storage is liable for balancing charges, which they are charged twice – once for ‘consuming’ the electricity they store, then for supplying it back to the grid – costing UK storage approximately £14.9 million annually. They are also double-charged the Climate Change Levy (CCL), all of which the select committee believes shouldn’t be applied at all.

The report suggests a new and distinct asset class be considered for storage, but adds that the government must first make its position on storage known.

It states: “The current regulatory conditions for storage are hindering its development. We welcome the government’s consultative approach to this matter, but hope it will proceed with a sense of urgency. We urge the Government to publish its plans, as soon as possible, for exempting storage installations from balancing charges, and from all double-charging of network charges.”

Angus MacNeil, chair of the ECC select committee, said: “Innovative solutions—like storage and DSR— to 21st-century energy problems have been held back by legislative and regulatory inertia. The government has committed to addressing these issues, and we will hold them to account on making good on this promise. DECC must also learn lessons from these policy lags so as to be better prepared for ongoing changes.”

It concludes: “Our overarching message to the government is to take seriously the criticisms about its speed of delivery, as expressed in this report and elsewhere, and to learn lessons from its approach to energy networks that can be used to improve its change readiness in future.”